The Bank of Italy has published its second economic bulletin, looking at the economic consequences of the war and the possible extension of sanctions to natural gas supplies as well, with a series of very interesting assessments that should be front page news in all newspapers. if you wanted to get real information. On several occasions, Governor Visco spoke warmly about the economic situation and its possible developments.
What’s in the bulletin? Let’s take two simple excerpts, the first about Italy’s dependence on Russian gas:
More than a fifth of Italian energy imports come from Russia; for natural gas alone, the share is over 45 percent.
The possible disruption of Russian gas flows could, according to preliminary estimates, be compensated for by about twofifths by the end of 2022 and without affecting national methane reserves by increasing imports of liquefied natural gas, greater reliance on other suppliers and the increase in natural gas production from national fields. In the medium term, it would be possible to fully compensate for Russian gas imports through greater investments in renewable energies and through increased imports from other countries.
So a man who will certainly never speak out against the government or the EU calmly says that by 2022 at the latest we can do without less than half, 40% of the natural gas imported from Russia. Things can change on the “mid term”, but the “mid term” is between 18 and 36 months. To paraphrase Keynes, we will all be dead in the medium term.
Therefore, the Bank of Italy creates three economic scenarios for Italy, which are divided into a more favorable, a medium and a worse scenario depending on the course of the war. Let’s see how the central bank expresses itself on the three profiles in terms of growth and inflation.
Nello more favorable scenario, which assumes a speedy resolution to the conflict and a significant reduction in related tensions, GDP growth would be around 3 percent in 2022 and 2023; inflation would rise to 4.0 and 1.8 percent respectively. Nello intermediate scenarioor, formulated assuming continued hostilities, GDP would increase by about 2 percent in both years; Inflation would be 5.6 and 2.2 percent. Nello more severe scenario which also assumes a disruption in Russian gas flows, only partially offset by other sources Il GDP would fall by almost half a percentage point in 2022 and 2023; Inflation would approach 8 percent in 2022, falling to 2.3 the following year. This wide range of estimates does not take into account possible new policy responses, which will be essential to counteract recessionary and price pressures resulting from the conflict.
So even a moderate and progovernment body and the EU are telling us clearly that in the event of a supply disruption they would be plunged into a depression for two straight years, with inflation potentially hitting eight percent in 2022, with real incomes cut hardest. Contrary to what they are trying to offer us, cutting Russian gas would not only mean a little less air conditioning, but would become a real economic disaster even for the Bank of Italy. Do the Italians really want this Armageddon?
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